Leaders from OPEC, Asia Call for Increased Regulation of Oil Speculation to Avoid Price Spike

Leaders of OPEC and Asian nations meet in Tokyo on April 26th. (image: bloomberg.com)

Last Sunday, leaders from the member nations of OPEC and 13 Asian nations convened in Tokyo for the biennial Asian Ministerial Round Table Meeting.  Following the meeting, the group released a draft statement that included calls for stricter controls over speculation in the oil markets to avoid a future price spike, Bloomberg.com reported.

The group’s statement is the latest in a series of calls for tighter oversight of oil speculators’ (those who buy and sell contracts strictly for financial gain with no intention of accepting the oil itself) involvement in commodities markets.  Many analysts believe that speculation was the main cause of last summer’s oil price spike, and it appears as though the group of OPEC and Asian leaders believes it could happen again.  In January of this year, OPEC released a plan to cap speculative trading on oil markets.  In February, the US House Agricultural Committee approved legislation that would extend position limits (limits on the number of contracts held at one time by a trader or group of traders) that currently apply exclusively to agricultural products to cover all commodities.  The legislation is still under consideration in Congress.  The statement from the OPEC/Asia group echoed the intent of that legislation, specifically calling for the “imposition of position limits” on the oil markets.

The two official goals of the Tokyo summit were to reinvigorate investment in oil production and avert a possible spike in oil prices that could hit when the global economy recovers from the current recession.  According to the International Energy Agency, investments in energy production will fall by 20 percent in 2009.  Dramatically lower production levels could bring about a supply crunch and price shock by 2013, the IEA warned.

Whether or not the group’s call for more regulation will have an effect remains to be seen, but it is important to note that they are not alone.  When power players like OPEC and the US Congress agree on something, it’s a good bet that it will lead to some kind of action.  If new restrictions on oil speculation are put in place, it’s not a guarantee of low crude prices and cheap heating oil, but it could go a long way toward reducing uncertainly and reigning in the wild gyrations of prices Americans pay for petroleum products.